Las Vegas broadcasting firm sold for $2 billion

Tuesday, Jan. 16, 2001 | 10:55 a.m.

SUN STAFF AND WIRE REPORTS

Less than three years after going public, radio broadcaster Citadel Communications Corp. of Las Vegas said today that it agreed to be acquired and taken private by investment firm Forstmann Little & Co. in a $2 billion stock and debt deal.

The stock of Citadel -- which has no Las Vegas radio stations -- surged 41 percent, or $7.25, to $24.75 after the deal was announced.

Citadel focuses primarily on acquiring, developing and operating radio stations in mid-sized markets throughout the United States and currently owns or operates 143 FM and 64 AM stations in 44 mid-sized markets. In terms of revenues, Citadel is the country's sixth-largest radio broadcaster.

Privately held Forstmann Little of New York will acquire all outstanding shares of the company for $26 per share in cash -- a 49 percent premium over the stock's closing price of $17.50 on Friday.

The two firms said that Forstmann will invest $1.5 billion of its own capital, with affiliates of J.P. Morgan Chase & Co. providing $500 million of bank financing.

"Forstmann Little's investment will provide us with the capital we need to support our stations and pursue our growth strategy," Citadel Chairman, President and Chief Executive Lawrence Wilson said in a statement. "This transaction is a significant validation of our business plan and allows us to execute on our commitment to providing value to our shareholders, employees and customers."

Forstmann Senior Partner Theodore Forstmann said the planned transaction also fits in with his firm's focus on investments in companies with high growth potential.

Under the terms of the transaction, Citadel will continue to be run by its current management team and no changes in operations are expected.

Since its foundation in 1978, Forstmann has invested approximately $10 billion in 28 acquisitions. Its current investments include XO Communications, a provider of broadband communications services in Las Vegas and other top-50 markets, Community Health Systems Inc., an operator of non-urban hospitals in the Southeast and Southwest regions, as well as computer magazine publisher Ziff-Davis Publishing Co.

Forstmann's move into the radio sector is "an affirmation that the sector fundamentals are beginning to improve," UBS Warburg analyst Leland Westerfield said. Radio companies have experienced a soft advertising environment over the last few months, and many sector stocks have been beaten up. Analysts, including Westerfield, have been predicting an upswing in earnings momentum for the second half of 2001.

Given Citadel's focus on growth from internal operations, as well as acquisitions, its purchase by Forstmann Little also "reaffirms that consolidation in the radio sector holds value," according to Westerfield.

Forstmann said he is ready for a possible downturn in advertising.

"We're prepared for a not exactly exciting patch here," Forstmann said. "We've accommodated it. But we've got a lot to do and now we can do it in the peace and security of a private company. It couldn't get a lot bigger as a public company."

Wilson said he began considering a sale after he spoke with Forstmann in October about the company's future as a public company. "The choppy public market, the debt level and facing the possibility of a slowing economy made me consider selling out," Wilson said.

For Wilson, who founded Citadel in 1984 with two radio stations in Tucson, Ariz., the sale will allow him to "not worry" while he stays on to "build this thing." Indeed, Wilson, a former lawyer and accountant, may be more like an investment banker than a broadcaster, wheeling and dealing his way into control of 209 radio stations.

While Forstmann may not be that acquisitive -- he has completed 27 major deals, including buying out Gulfstream Aerospace, General Instrument, Topps baseball cards and Dr Pepper -- he said he thought that more acquisitions through Citadel could be possible. "If a big opportunity comes along, it might be a whole different company in two years," he said.

But for now, at least, it may be tough going. In fact, the strains on the advertising climate may already be showing. Citadel missed its third-quarter earnings estimates as its loss widened to $11.2 million, or 30 cents a share, compared with $2.8 million, or 9 cents a share, in the period a year earlier. However, sales rose 55 percent, to $78.2 million from $50.5 million.

But Forstmann insists he's a long-term player. When asked what his exit strategy might be, he said he had not thought of one yet.

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